GRADUATE SCHOOL OF BUSINESS

AGC 606
Economics for Business

Topic:
Transformation: From traditional to digital economy
Group Member:
 DHURAIRAJ A/L TIAGARAJAN P-GSM0143/17
 ESMOND YEAP THENG SIANG P-GSM 0166/17
 HANUISYA A/P KALAIMONEY P-GSM0180/17
 SANGGITAH A/P ARASALINGAM P-GSM0203/17
 VICKRAM A/L VENUGOPAL P-GSM0145/17
 Content
Topics Pg No

Introduction 1

Benefits of the digital economy on the traditional economy in Malaysia 2

Threats of the digital economy on the traditional economy in Malaysia 3

Would the digital economy be more sustainable compared to the traditional 5

economy?

Opportunities of Digital Economy for Malaysia 8

Conclusion 10

Reference i

Appendix iii
Introduction

A traditional economy is an economic system that relies on customs, the past and
time-honored beliefs which provide economic decisions in production as well as distribution
(Amadeo, 2018). In traditional economies, agriculture, aquaculture, mining, and others are
highly important as it contributes to the economy. It is still practiced in emerging and
developing countries throughout the globe and Malaysia is one of them. Malaysia, being the
20th largest export economy in the world where in the year 2016, USD184 billion in total
export against USD156 billion total imports with a trade surplus of USD28 billion (OEC, n.d).
Malaysia’s economy is highly dependable on commodities like oil and gas, palm oil, rubber
and others. As in 2016, the total GDP RM1,108.2 billion, mining and quarrying sector
contributed 8.8% while agriculture contributed 8.1% (Department of Statistic Malaysia, 2017).

The transformation from Traditional Economy to Digital Economy in Malaysia was

accelerated with the launch of Multimedia Super Corridor (MSC) in 1996, with the intend to
build on Malaysia’s current strengths in electronics, skilled labor, and high‐quality
infrastructure to become a more visible regional and global player in the development and
application of information and communications technology (ICT). What is Digital Economy
then? There is no universal definition of the digital economy, however it can be characterized
by pervasive use of ICTs in our economy. (Malecki and Moriset, 2008)

In Malaysia, transformation to digital economy or better known as digital

transformation is progressing in an extremely rapid phase. With the implementation of
Artificial Intelligence (AI), Internet of Things (IoT), cloud platforms and mobility have
contributed to 7% of Malaysia’s GDP in 2017 (Mehrotra, 2018). Within the next four years,
we expect to see approximately 45% of Malaysia’s GDP to be derived from digital products
and services and in 2021, digital transformation will add an estimated US$10 billion (RM39.11
billion) to Malaysia’s GDP, and increase the growth rate by 0.6% annually.

The government is also actively supporting this global trend through their arm,
Malaysian Digital Economy Corporation (MDEC) which is the leading government-owned
agency responsible in pioneering the transformation of Malaysia’s digital economy. MDEC is
responsible to ensure that Malaysia plays an integral part in developing and nurturing talent

pg. 1
to drive digital innovation around the world, while attracting participation from global ICT
companies to invest and develop cutting edge digital and creative solutions in the country.

Notable implementations of this body is the development of Malaysia Digital Hub™,

an initiative that supports tech and digital co-working spaces, their startups and communities
with support from the government and a bigger opportunity to connect to ASEAN and global
digital ecosystem. Malaysia Tech Entrepreneur Program (MTEP) is also an initiative by the
Malaysian government that aims to attract gifted and ambitious individuals from all around
the world and help them to kick-start their startups in Malaysia. MDEC is also launching the
Digital Free Trade Zone (DFTZ) which will see Malaysia’s SMEs doubling exports and establish
Malaysia as a regional trans-shipment hub for e-commerce logistics while creating 60,000 jobs
by 2025.

Benefits of the digital economy on the traditional economy in Malaysia

According to the research by MCMC, from 32 million peoples in Malaysia, 24.5 million
users (76.9%) have Internet access. The key point here is: Almost all Malaysian Internet users
(96.3%, 23.59 million) use Internet for text communication such as Whatsapp, Facebook and
so forth. With the high internet usage by Malaysians, there is a huge potential of the growth
of the internet which will contribute to the digital economy. (Refer to Chart 1.1 in Appendix)

Kutnick noted that Malaysian organizations have undertaken some sort of activity around
digital business. Regardless of the scale of their transformation, it is crucial for the companies
to take stock of their strategy to accelerate their digital business initiatives. Touching on the
“Internet of Things” revolution, he said that a major driving factor is the rapid spread of
physical sensors that will take place over the next five years. Lazada Malaysia being the
number one online shopping and selling destination in Malaysia, they are committed in
supporting our local SMEs and helping them build their eCommerce businesses through their
#EveryoneCanSell programme (eMarket place), sellers can enjoy full access to eCommerce
training, easier business registration, enhanced internet connectivity with online tools and
solutions, as well as financial support through loan financing and exclusive merchant
accounts. This initiative believes to boost SMEs’ capabilities when they capitalize on
#EveryoneCanSell’s holistic digital ecosystem to remain competitive (Anon., 2017).

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 The cloud can be a huge benefit to a business. It can help lower costs, ensure data is
backed up and prevent total system meltdowns. With the cloud, employees can work more
efficiently and gain greater confidence in their jobs (Sullivan, 2018). With the availability of
big data or artificial intelligence will help the SMEs to target their right group of people to
market and sale their products or services at a lower cost. This eventually cuts down the cost
of printing materials, labor cost and the cost to maintain a brick and mortar for conducting
the traditional marketing process.

In 2013, Cyberview Sdn Bhd received a new mandate from the Malaysian government
to transform Cyberjaya into a Global Technology Hub. This new hub shall not be limited to ICT
and at the same time accelerate Cyberjaya’s global leadership in Information
Communications Technology. This initiative aims to create high technology jobs for
Malaysians and to make Cyberjaya a preferred investment hub for technology companies
while reaffirming Cyberjaya's existing position as a premier ICT location. Committed to the
new duties given, Cyberview’s team set out on a study to formulate a strategic blueprint. This
blueprint will identify common key success factors of global technology cities to develop focus
areas that will expedite achievement of the aspirations from the new mandate. The Strategic
Blueprint is expected to have a significant impact in terms of (Gross National Income) GNI
creation, job creation, development of new industries and industry specific ecosystems as
well as technology transfer (Cyberview, 2014). There is a huge play for governments to
operate smart cities e.g. Cyberjaya as the IT hub city where you can see most of the big
companies like Oracle, IBM, Dell, HP, Intel, Shell, HSBC & etc. This is where it creates more job
opportunities to our educated and group of talented people.

Threats of the digital economy on the traditional economy in Malaysia

Financial services are one example of a typically legacy-based industry that is

recognizing the necessity of becoming more innovation-focused to have a role in the world’s
economy. In fact, a recent report by Deloitte and the World Economic Forum entitled The
Future of Financial Services identifies eleven “critical clusters” of innovation that are needed
to drive the financial services industry forward. The report states that winning organizations
will be those that manage the transition to new business models that maximize value to
customers in the form of greater agility, simplicity and trust. These are core characteristics of
today’s best businesses. Making that transition means financial services executives need to
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rethink the systems that support business operations. A 2012 report by the Reserve Bank
points to legacy systems as a key source of operational risk for the financial services industry.
Digital commerce is a service that consumers expect to be there whenever they are ready to
use it, and with competitors just a click away, executives cannot risk losing transactions due
to system downtime.

The main obstacle that discourages internet users from making transaction via
Internet is due to the security control check and the security issues. This concern is a major
concern among worldwide consumers. Regardless of the reason, security issues have been
creating unnecessary anxieties for many businesses and consumers. Both online purchasers
and non-purchasers claimed that they would shop more online if they could be assured that
a company on the Web was reputable and if they were confident with the security of the
payment system. Those who have never purchased anything online are especially worried
about the safety of submitting personal billing information via the Internet. (John Paynter &
Jackie Lim, 2001)

Besides, the Future of Jobs Report 2016 confirms that the transformation to digital
will change the way we live, and the way we work. Some jobs will disappear, others will grow
and jobs that don’t even exist today will become commonplace. What is certain is that the
future workforce will need to align its skillset to keep pace. Creativity will become one of the
top three skills workers will need. With the plethora of new products, new technologies and
new ways of working, workers are going to have to become more creative to benefit from
these changes. Robots may help us get to where we want to be faster, but for the time being
they can’t be as creative as humans. Whereas negotiation and flexibility are high on the list
of skills for 2015, in 2020 they will begin to drop from the top 10 as machines, using masses
of data, begin to make decisions for us.

Other than that, Cyber criminals includes hacking groups, ransomware, phishers and
scammers. Cybercriminals are adopting in advance area such as (AI) artificial intelligence to
commit more effective attacks. Fortinet is a fourth largest security company by revenue
based in Sunnyvale, California which develops and markets cybersecurity software,
appliances and services, such as firewalls, anti-virus, intrusion prevention and endpoint
security, among others. Building from the foundation and successes of the last two years,
Fortinet believes that new cyber threats will be more dangerous and pernicious and becoming
pg. 4
more intelligent, able to operate autonomously, and increasingly difficult to detect. This will
post a threat to the national security of the country as terrorist may launch cyber warfare to
disrupt the economy of the country in particularly Malaysia.

Would the digital economy be more sustainable compared to the traditional economy?

Yes, the digital economy will be more sustainable compare to the traditional economy. With
the increasing use of information and communication technologies (ICT) together with the
development of hardware and software, these have contributed towards digitization. Instant
messaging, navigating with online maps, and with the availability of the internet 24/7, has
made us become so embedded that it is hard to imagine living without these applications and
devices.

Digital role in four key markets:

i) Energy
Modern society needs sustainable, reliable and secure energy supply, which not
only provides and stores green energy (i.e. hydroelectricity, solar, wind, etc.), but
is also able to integrate these power forms from various sources, e.g. private solar
panels. Digital technologies are set to make energy systems around the world
more connected, intelligent, efficient, reliable and sustainable. Stunning advances
in data, analytics and connectivity are enabling a range of new digital applications
such as smart appliances, shared mobility, and 3D printing. Digitalized energy
systems in the future may be able to identify who needs energy and deliver it at
the right time, in the right place and at the lowest cost. Digitalization is already
improving the safety, productivity, accessibility and sustainability of energy
systems.
Smart grids play a growing role to balance power generation with demand and
increase efficiency. Digital technologies are at the heart of smart grids. Smart
meters that allow real-time tracking of power consumption by end-users are a case
in point. Smart household appliances that communicate with the grid and react to
signals from energy providers to reduce energy consumption during times of peak
demand are further key components. In June 2012, TNB’s research arm, TNB
Research Sdn Bhd (TNBR), partnered with Trilliant Holdings Inc, a global smart grid

pg. 5
 communications company to develop solutions to provide with end-to-end
solutions for the utility’s first integrated smart meter and smart grid project (The
Malaysian Reserve, 2017)
ii) Food
Food demand is projected to increase by at least 60 percent until 2050 compared
to a 2006 baseline. Climate change and resource scarcity pose growing obstacles
to meet this requirement. Against this background, the most recent annual report
of the Food and Agricultural Organization highlights the need for “a profound
transformation of food and agricultural systems worldwide”. In parallel to the
expanding use of digital technologies in food production, digitalization is also
growing inroads into its distribution. The increasing role of online shopping
provides an illustration. A 2015 online survey of 30 000 respondents across 60
countries, found one quarter to be already shopping groceries online for home
delivery and 55% being willing to do so in the future. A smaller number of
consumers are using “click and collect” models where they order online and pick
up goods themselves at a store or different location.
In addition to such use of QR Codes to order purchases, also plays a growing role
in increasing transparency on products. With smart devices phones and tablets it
is easy for customers nowadays to scan products and do research on them, even
while in a store. The application fTRACE is an example. Its provider works together
with different food producers to include a tracking code on the packaging of their
products, which can be scanned to retrieve key information about the product,
and search for its origin, where and when it was processed, as well as data about
its quality.
iii) Health
The digital health market in Malaysia is heading towards a Smart Digital Nation in
2020. A new memorandum of agreement in Malaysia drives digital healthcare
innovation, according to industry catalyst CREST (Collaborative Research in
Engineering, Science & Technology) and cloud productivity company Microsoft.
The long-term agreement, signed during the Malaysia Telemedicine Conference
2016 at Sunway Medical Centre, involves the creation of a CREST-Microsoft Health
Innovation Hub.

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 Speaking of the hub, which is fully operational by mid-September, CREST's chief
executive officer Jaffri Ibrahim said: "Buoyed by demands and aspirations of the
Electrical and Electronic (E&E) industry in healthcare, strongly believe that digital
health innovations are at the heart of addressing the healthcare challenges faced
by the country today."
Ibrahim said "first-of-its kind digital health hub will provide complete, end-to-end
services for developers, start-ups and researchers looking to co-innovate and co-
sell their solutions, all within the category of health. This starts from
conceptualization to creation, and even to the commercialization of the product
domestically."
The hub focusses on five core virtual health scenarios - tele-health, smart access,
remote patient monitoring, drug adherence, and corporate wellness.
To help reduce unnecessary hospital and clinical visits, emerging technologies such
as the Internet of Things (IoT) devices will be used to take health measurements,
while care givers can monitor patients remotely (Kumar, 2016).
In addition, cloud-based analysis of data helps to monitor acceptable thresholds
to allow caregivers to prompt patients to take corrective action.
The services provided in the CREST-Microsoft Health Innovation Hub helps
interested parties to build on such scenarios by having access to CREST's IoT Cloud
Data Centre (ICDC) Research Lab for prototype development, solution trials, and
product demonstrations.
While the hub is physically located at CREST's facility in Penang, its services is
accessible nationwide.
The CREST Connected Healthcare Cluster (CHC) was formed in April 2014 to focus
on the application of wearable embedded systems, Internet of Things (IoT)
connected devices technology; and the successful commercialization of healthcare
products, solutions and services by the Electrical & Electronic industry.
iv) Finance
Digital technologies have played a growing role in finance for a long time. Digital
technology is transforming the financial services landscape. Developing country
governments in Asia and the Pacific are exploring ways to encourage their
populations to use the four key instruments of financial inclusion: payment

pg. 7
 system, credit, insurance, and investment. By creating such an ecosystem, they
can help expand access to affordable financial services to the financially excluded.
The emergence of new digital technology, including Fintech, can ensure financial
inclusion and improve financial well-being. While there can be no doubt that the
world of technology is booming, finance than other technical areas of invention.
However, in Malaysia, some of the biggest names in the financial industry are
taking steps to facilitate FinTech providers, leading to a future of rapid expansion.
In May, the central bank of Malaysia, Bank Negara Malaysia (BNM), demonstrated
its desire to grow the industry by approving four firms to operate within its
“regulatory sandbox”, with a remit of creating innovative ways to improve the
quality, efficiency and accessibility of financial services in Malaysia (Tan,, 2016). So
willing is BNM to enhance FinTech visibility that its Financial Technology Enabler
Group (FTEG) began canvasing FinTech ideas from the public through its Fintech
Hacks initiative. As well as BNM, we are also seeing other traditionally conservative
organizations moving into the FinTech sector, and in March Public Bank Berhad
(PBB) partnered with iSentric to develop a mobile payment solution to rival
Samsung, touted for launch at the back end of 2017. Another way in which the
established players are encouraging growth in the FinTech sector is by helping with
regulatory clarification. For its part, FTEG launched a website outlining these
regulations and BNM has been participating in University roadshows and informal
panel discussions while FTEG’s chairman took part in the 9th BankTech Asia
Conference in July to help FinTech startups better understand the regulatory
landscape (Tan,, 2016).

Opportunities of Digital Economy for Malaysia

Malaysia aspires to enable its citizens and its economy to keep a steady pace with the
digital economy by laying a solid foundation where in the 8th Malaysian plan to build ICT
infrastructure for public sector as well as private sector. This has resulted in 4.7% annual
growth in ICT infrastructure spending from all economic sector achieved which impacted on
the increased usage of IT infrastructure and computerization in government agencies
(Jehangir, Dominic, Naseebullah & Khan, 2011). Now with High-Speed Broadband (HSBB)

pg. 8
coupled with fibre connectivity which enable Malaysians to experience high quality
infrastructure that on par with developed countries. Collaboration among the government,
Malaysian Communication and Multimedia (MCMC), the state government and local
authorities on the deployment and the planning of the broadband at a reduced cost which
will ensure the success of digital global economy.

Furthermore, incentives are provided to start ups and industries such as Corporate
Tax Exemptions, access to funding’s, coaching, low cost of doing business and Freedom of
ownership for foreign companies for investors. Along with the recent Budget 2018 in which
substantial amount of funding’s have been channeled towards digital inclusivity and talent
development of future work very well put Malaysia in the leading forefront of Digital Economy
in Asia. On 20th October 2017 Prime Minister Dato’ Sri Najib Tun Razak hosted the 29th
Implementation Council Meeting (“ICM”) emphasizing on the importance of the Digital
Economy and announced a new stream of initiatives to boost nationwide digital
transformation by allocating RM100 million for the eRezeki and eUsahawan programmes as
well as new flagship initiative called eLadang to encourage farmers to leverage the latest
smart farming technologies such as IoT (Internet-of-Things), BDA (Big Data Anaytics) and AI
(Artificial Intelligence) to improve yield and income (Mahmood, 2017). The allocation of
RM83.5 million for the first phase of the Digital Free Trade Zone (DFTZ) at KLIA is expected to
further spur the growth of local Small and Medium Enterprises (SMEs) and attract
investments worth up to RM 700 million (Ressel, 2017).

As the security and privacy are the main hindrance of the implementation of E-
Commerce and conduct an online transaction, both consumers as well as business they are
skeptical to go online for business purposes. Malaysian government has taken several
measures and initiative to enhance the security by implementing several legal and regulatory
frameworks to regulate the intellectual property and cyber law which will encourage E-
Commerce. Examples of the law are Copyright Act 1987, Computer Crime Act 1997,
Communication and Multimedia Act 1998, Communications and Multimedia Commission Act
1998 and Electronic Commerce Act 2006.

pg. 9
Conclusion

Digital economy provides many prospects for Malaysia to achieve socio economic
development as well as global business attraction which pushing the business in Malaysia to
go global and create a new source of revenue. Government must play a vital role to inspire
and engage the private sectors to take part together in the development of the digital
economy agenda. As small and medium enterprise are highly sought to adopt E-Commerce
and to leverage on government’s E-Commerce plan. With Jack Ma, the founder and CEO of
Alibaba Group as the Malaysian digital economic advisor, we will see SMEs as well as
entrepreneurs able to use digital way to buy global and sell global. This will become one free
trade model that focuses on SMEs and micro businesses which will set as one of the leading
examples of a free trade to other country to adopt. SMEs are the backbone of the Malaysia’s
economy as 98.5% of all business establishments in Malaysia are SMEs. Thus, for Malaysia to
achieve its digital economy agenda is through the involvement of the SMEs. On the other
hand, as more Malaysian are well exposed to internet and well educated which will impact
on their behavior towards online spending or transactions which will drive the digital
economy further in coming years. For Malaysia to fully transition from traditional economy
to digital economy, everyone must play their own significant role, may it be an individual or
the government or the business owners to ensure that Malaysia will achieve the Vision 2020
and truly embrace the Industrial Revolution 4.0.

pg. 10
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pg. ii
 Appendix

Chart 1.1 Internet usage in Malaysia.

Source: Malaysian Communications and Multimedia Commission internet user survey 2017

pg. iii